Philippines: Is ERC undermining DOE?

Philippines: Is ERC undermining DOE?

It's summer, and with it comes the scorching heat - and brownouts.

The country's power supply situation continues to be in such a precarious
state, so much so that a power disruption is highly possible if one big
power plant in the national grid trips or shuts down for any technical
reason.

Despite the exuberance of businesses in investing in the country's power
sector, the needed new power plants that should ensure adequate electricity
supply to keep up the Philippine economy's momentum of growth are just not
being built fast enough.

The projects remain stranded in the mess of ERC.

Something rotten and smelly at ERC?

The Energy Regulatory Commission (ERC), which has to approve power supply
agreements (PSAs) between generation companies and distribution utilities
and to issue certificates of compliance (COCs) to generating plants before
they can start operations, is taking its sweet time in processing the
permits.

Currently, pending with the ERC are some 4,000 megawatts of power capacity
that should have been started the previous year, but for some unseen reason,
continue to be passed from one bureaucrat's desk to another in the agency
for an unnecessarily long time.

The question that comes to mind is whether the ERC has the personnel
qualified to process PSAs and COCs, or if there is indeed truth behind the
pronouncement of Speaker Pantaleon Alvarez of widespread corruption among
its officials.

Earlier, the reported suicide of ERC director Francisco Jose Villa Jr. was
linked to a note he supposedly left that divulged of alleged shady deals and
irregular practices in the ERC.

Risk to economic health

Perhaps, it is indeed high time to review the wisdom of having the ERC vet
proposed PSAs, especially since the agency's primary role by law is merely
to set rates for utilities that serve captive electricity consumers, and to
prevent anti-competitive behavior for retail electricity suppliers to
contestable customers.

By sitting on PSAs and COCs for an unreasonable length of time, the ERC in
effect is putting at risk the country's economic health by exposing our
manufacturing plants and commercial establishments to severe power outages
in the coming years.

The suggestion of Alvarez to abolish the ERC and instead replace it with a
Board of Energy attached to the Department of Energy makes sense since this
will ensure that the newly created board would be within the regulatory
ambit of the government and directly under the control and supervision of a
Cabinet member reporting directly to the President.

The Speaker's proposed bill, filed in February this year, provides that the
created BOE will perform the functions of the ERC, but will be under the
supervision and control of the DOE.

Conflicts between DOE and ERC

Conflicts between the DOE and ERC have been noted when the issue of
inadequate power capacity is discussed, especially when a big power outage
incident occurs. The former had been diligently identifying power projects
and potential investors, but the delays caused by ERC inaction have made
mincemeat of their efforts.

The ERC also passes judgment on all rules and regulations prior to the
operation of the transmission and distribution grids, as well as those
guiding the operations of the wholesale electricity spot market.

Many times, this situation has resulted in conflict with the DOE's planning
and policy directions, and ultimately affecting its mandate as specified by
the law.

Prospective power plant operators have also been complaining about the
inordinately long time the ERC takes to issue PSAs and COCs, and this after
they had gone through a long process of securing permits and clearances from
various other local and national government units and agencies.

The requirements and delays easily add two to three years to the timeline of
building a power plant in the Philippines when it normally would have taken
only five years in other countries.

DOE initiatives to untangle mess

It is understandable why the DOE is asking for the President's approval of a
proposed executive order (EO) that would declare power projects that will
boost the country's power supply level by 2019 and beyond to be of national
importance.

The EO is seen to help expedite the process of securing permits for the
projects, including one that will connect the Visayas and Mindanao grids by
2020. As growth areas, the two strategic island groups of the country will
benefit from the sharing of power resources.

The National Grid Corp. of the Philippines (NGCP), which assumes the
transmission functions of the National Transmission Corporation (TransCo),
looks after grid expansion and reliability projects that are essential to
providing continuous supply, efficient, reliable and best possible quality
of service to its customers.

The DOE is also lobbying for a law that designates critical energy projects
for the national economy as "Projects of National Significance" to address
the bureaucratic red tape that is preventing the power plant initiatives to
move forward.

Sen. Sherwin Gatchalian was reportedly thinking about re-filing the bill,
with the same intention of speeding up the process of building power plants
in the Philippines.

ERC and Mini-me

As an aside, allow me to introduce Mini-Me a character in the popular Austin
Power movies. A clone of Dr. Evil, except for the size, having been created
to be only "one-eighth" the size of the original, Mini-Me is regarded as a
surprising tough opponent when pitted against the forces of good.

In fact, as the movie series sometimes portrays, Mini-Me appears to be a far
stronger and powerful version of his larger counterpart. Is this what has
happened to our energy environment? A regulatory agency with narrowly
defined function more powerful than an executive office responsible for
energy policy formulation and execution?

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Link to Original Article:
http://www.philstar.com/business/2017/03/30/1685800/erc-undermining-doe

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com